Fiduciary Duties

Question 1

What is the general maxim that brings about a fiduciary’s liability to account?

Answer 1

“Equity will not allow a person to profit from their wrongdoing.”

Question 2

Why was the Law Society in Swain not declared a fiduciary?

Answer 2

Its rate-setting for professional indemnity insurance was a public, not private duty.

Question 3

What is the confusion in Tito v Waddell?

Answer 3

That some government obligations are not fiduciary, yet some are. It is not clear where or what the boundary is.

Question 4

What is the justification for holding fiduciary to account?

Answer 4

They are established in their position by virtue of trust and confidence; that they are a stronger party in relationship with weaker party (due to power/knowledge imbalance) means they should not use that position to advantage themselves.

Question 5

Bray v Ford.

Answer 5

Per L Herschell:

1. Cannot profit from fiduciary position.
2. Fiduciary must not allow personal interest to prevail over duty to principal.

Question 6

What is an exception?

Answer 6

If the trustees are already beneficiaries as appointed by the testator, Sergeant v National Bank.

Question 7

What happens if profits made by ‘trustee’ are made illicitly?

Answer 7

Per Reading v Attorney-General (soldier selling contraband), Attorney-General for Hong Kong v Reid: property held on constructive trust for employer (even if, as in case of HK, employer was not owner of property to begin with).

Question 8

Why was Blake not entitled to the property in his possession?

Answer 8

In Attorney-General v Blake, Blake had been acting as spy for government, and sold secrets in his memoirs. Per L Nicholls: Blake has earned his profit by doing the very thing he promised not to do.

Question 9

Contrast Blake with Versailles.

Answer 9

In Sinclair v Versailles, it was held that giving and receiving of bribes was not unauthorised remuneration.

Question 10

What is the self-dealing rule?

Answer 10

Whereby trustee as fiduciary buys property from beneficiary. Due to power imbalance, void at instance of beneficiary. Per VC Megarry in Tito v Waddell, “any beneficiary can void or overturn the transaction where the trustee buys the property, it makes no difference whether the transaction was honest and/or open.”

Question 11

Why according to court in ex p Lacey should there be an absolute self-dealing rule?

Answer 11

“It would be almost impossible to find out whether trustee had bought property for good motive.”

Question 12

Wright v Morgan

Answer 12

If the trustee is retired, they may legitimately purchase the property from the beneficiary.

Question 13

How did Holder v Holder alter earlier case law?

Answer 13

Court required, in order for B to void transaction, that the claim is brought in a timely manner; anything in excess of that could be unconscionable.

Question 14

Re Thompson’s Settlement

Answer 14

The fiduciary is a large shareholder in the company, to such extent that he is the company.

Question 15

How is fair dealing rule addressed in Coles v Trescothick?

Answer 15

An innocent beneficiary may choose to uphold transaction or not; but it is valid for fiduciary to show that their buying an interest in property, so as to become beneficiary themselves, was done fairly, honestly and without appearing to exploit the situation.

Question 16

Where there is a prior conflict of interest and duty (between contractual and fiduciary obligations) what occurs?

Answer 16

Per Re Mulholland’s Will Trust, the trustee is allowed to retain the property, because otherwise would be in breach of contract.

Question 17

What links 1. Armstrong v Jackson, 2. Bentley v Craven?

Answer 17

Both involve fiduciary selling to beneficiary. Both were held to be invalid, due to power imbalance. A v J regarded selling of shares, B v C the selling of sugar between partners - held to be conflict of interest and duty.

Question 18

Target v Redfern

Answer 18

The fiduciary was acting for both the borrower and the lender. They were to make commission from anyone who brings business. Held to be liable for any losses if potential conflict not disclosed.

Question 19

Keech v Sandford

Answer 19

No unauthorised benefit or profit may be made by fiduciary, including through use of information. In this case, the trustee had been acting on behalf of child for land lease. The trustee had to account for all profits, no matter how honest their behaviour.

Question 20

Protheroe v Protheroe

Answer 20

A wife was entitled to 50% profit from a freehold as joint tenant without needing to make any investment of their own.

Question 21

Competition law has replaced what case?

Answer 21

Re Thomson - fiduciary cannot compete with the beneficiary.

Question 22

Queensland Mines v Hudson

Answer 22

H, as managing director of QM, obtains mining licence. After being assured QM wanted no part of potential mining investment, went on to profit from venture. Held that H was entitled to profits.

Question 23

Peso Silver Mines v Cropper

Answer 23

Similar facts and outcome to QM v H. The company made “a deliberate act in refusing to take up opportunity.”

Question 24

What was granted to fiduciary in Badfinger v Evans?

Answer 24

The fiduciary, though losing out on profits, was able - as in Boardman v Phipps - to claim for expenses, which were similar in quantum of profits. The fiduciary was so entitled by virtue of his expertise.

Question 25

IDC v Cooley

Answer 25

The employer was able to impose constructive trust on company director not to take up new post elsewhere.

Question 26

What is Jackson’s criticism of Lord Denning in Protheroe v Protheroe?

Answer 26

Lord Denning had said there was a “long-standing rule of equity that if the trustee who owns a leasehold gets the freehold… then that freehold belongs to the trust.” No authorities were cited for this.

Question 27

What point does Jackson make about the effect of Keech v Sandford?

Answer 27

It is too widely stated that “a trustee must not make a profit out of the trust estate”, due to Holder v Holder decision.

Question 28

Who dissented in Boardman v Phipps? What did they say?

Answer 28

VC Dilhorne: if they [the Fiduciaries] had entered into engagements in which they had or could have had a personal interest conflicting with the interests of those they were bound to protect, clearly they would be liable to do so. On the facts of this case there was not, in my opinion, any conflict or possibility of a conflict.’

L Upjohn: The phrase ‘possibly
may conflict’ requires consideration. In my view it means that the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict.

In general, information is not property at all. The true test is to determine in what circumstances the information has been acquired. Equity will restrain its transmission to another if in breach of some confidential relationship.

Finally: it would put the public trustee and corporate trustees out of business and make it difficult for private trustees to be trustees for more than one trust.